Cookie Notice

Ratesupermarket.ca uses cookies and other similar technologies in order to provide you advertising based on your browsing activities and interests. If you wish to opt out of interest-based advertising click here. To learn more about interest based ads and manage your preferences for interest-based advertising, you may also visit the Adchoices consumer opt-out page

US Government Closed For Business. Now What?

As of Monday night, the US government closed its doors, shutting out literally 800,000 non-essential federal government employees from their jobs. It’s causing havoc for anyone wanting to access anything run by the U.S. federal government. Everything from museums and presidential libraries to the Statue of Liberty and the Panda Cam at the National Zoo in Washington has shuttered its doors. These dramatic moves come after U.S. congress could not reach a deal with the government on a temporary spending bill.

Why The Shutdown?

The U.S. congress is responsible for passing spending bills to keep the government in business. Congress, the majority of which is made up of Republicans, is against the Obama’s Health Care law. Often referred to as “Obamacare,” it came into affect this week. Although the bill was voted on and passed into law, Congress is arguing spending on the Health Care law should be delayed, thus delaying the temporary spending bill in order to bring attention their dislike of Obamacare.

The Market Reaction

The market has had a “so far, so good” stance since the government shut down. But this could change if the shutdown lasts for an extended period. The general feeling is the U.S. government will come to an agreement about the temporary spending bill and government business will return to usual. The Health Care Law, whether it is funded or not, does not have a major impact on Wall Street or the financial markets.

Another Crisis Looming

There is a bigger, more dangerous situation looming. The U.S. Congress has to raise the debt ceiling by October 17th in order to keep the government from defaulting. If the ceiling is raised it will be the second time it has happened on President Barrack Obama’s watch. Failure to raise the ceiling would have widespread implications across the world. The government shutdown is a national nuisance, but a default would be global crisis. Bond markets would most likely rally, especially American debt. Negativity would return to the financial markets, as uncertainty would creep back into the minds of investors about the state of the global economy.

The Canadian Impact

America is Canada’s biggest trading partner and a prolonged shutdown will have adverse affects on Canadian business. With government offices shut down there is nowhere for official documents to be processed, so many small businesses may be unable to export their goods and services to the U.S. with the same efficiency. Canadians planning a trip to the U.S may be unable to access some attractions run by the Federal government.

A Good Time To Invest?

Its not all bad news. According to data compiled by Bloomberg since 1976, the Standard and Poor’s 500 Index (SPX) on average rises about 11 per cent in the 12 months following a government shutdown. That’s compared to the nine per cent it rises each on average. The S&P 500 has also been weaker over the past week, giving investors an opportunity to buy some stocks at bargain prices.